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According to Canada Mortgage and Housing Corporation, the Canadian real estate market has continued to ease up in terms of its extremely high value. However, major cities such as Toronto, Mississauga and Victoria are deemed to be in an extremely vulnerable state. These reports are all but familiar, for this is the tenth subsequent quarter in which Canada’s major cities were given such status.

When considering the rank under which these major cities would fall, factors such as significant price acceleration, overvaluation, inappropriate building, and several other imbalances were taken into account. These factors were then compared to historical averages, in order to obtain information on whether or not this vulnerable state is any different from the others.

The statistics for which real estate is overvalued were dropped to moderate according to the CMHC. Previously at a nearly all time high, the status was dropped when taking into account the disposable income of an individual, population growth and trends, as well as interest rates.

In Hamilton and Vancouver, high overvaluation persists, as well as a vulnerability level mirroring Toronto and Victoria. Separating the former from the ladder, is the value of said ladder’s marketplace. Housing costs in Hamilton and Vancouver continue to be among the highest of most cities in Canada, however, this level is predicted to be lowered, as overbuilding and overheating are ranking as significantly low, when compared to the grand scheme of things.

According to Bob Dugan, chief economist of CMHC, Toronto has observed a notable “easing of the pressures of overvaluation”, due to the moderation of price growth in regards to housing. Dugan stated that overvaluation is to be considered separate from affordability, as even if all of the fundamentals are in line with pricing, affordability can still be considered an issue.

According to the Canadian Real Estate Association, home sales across Canada dropped almost 19% since the previous year in December alone. The report is significant for it caps off what could and is deemed to be the weakest annual sales to be observed in almost 7 years.

In Toronto and Vancouver, those who are able to pay out above 20% for a mortgage will now be having difficulty qualifying for those mortgages, simply due to the mortgage stress test. The function began in early 2018, and was sanctioned by the Office of the Superintendent of Financial Institutions. Due to this action, various housing markets have cooled down.

So what exactly is the mortgage stress test? To put it simply, those who apply for a mortgage will be limited to a smaller loan than what would have previously been dolled out. Also, those requesting the loan are required to prove whether or not they can pay off their uninsured mortgage at a rate specified by the Bank of Canada. Due to the higher interest rates among our various communities, the mortgage stress test is being questioned. Questions pondering over whether or not it is still needed, along with whether or not the rules around the policy should be made drastically less harsh.

It’s important to note that the mortgage stress test is certainly resulting in a slow down among marketplaces, but it’s not the only factor that’s in play behind the scenes. Various fundamental factors are joining the policy in creating an outcome which was generally intended upon. According to several experts, the overall effect of the stress test is hard to pinpoint, however, it is almost certain to have been a very passionate causal factor.

According to Kevin Lee, Canadian Home Builders Association’s chief executive, their group is intent on bringing about proposals in order to adjust and change the stress test. The concerns being that affordability in regards to housing have become of great concern to the everyday citizen. CHBA has been in contact with the Prime Minister’s Office about these issues, and are hopeful that positive change will be in our near futures.

It’s important to keep in mind that this stress test was developed and designed for economic times that are not now. It’s time for the policy and everything it entails to be adjusted, and to perform in a way that would be beneficial to the economic stature that can be found today.

For first time buyers, the amortization period should be increased to 30 years, rather than 25. This recommendation comes from the CHBA, along with several others. For a brighter future, and a far more beneficial housing market, it’s time to make a change. Let’s get started.